Monsoon an important factor in RBI policy: Subbarao

Hyderabad, June 7 (IANS) Reserve Bank of India (RBI) Governor D. Subbarao Friday said the performance of monsoon would be an important factor in determining the central bank's policy in the next three months.

"We also chase monsoon like millions of farmers across the country. So, monsoon outlook and monsoon performance is going to be an important factor in determining the bank's policy in the next three months," he said.

Subbarao said this while delivering a lecture - 'India's Macroeconomic Challenges: Reserve bank Perspectives' - on the occasion of Institute of Public Enterprise's Golden Jubilee celebrations here.

The Indian Meteorological Department (IMD) has forecast a normal monsoon this year.

"As we move forward, we will keep track of growth as it evolves; keep track of inflation as it evolves; and keep track of balance of payment situation as it evolves," he said. The Reserve Bank is scheduled to come out with its first mid-quarter monetary policy review this month.

On India's current macroeconomic situation, Subbarao said the growth last year moderated to five percent, the lowest in a decade.

He pointed out that though inflation came off from the peak, balance of payments is under stress and investments have decelerated. He termed the deceleration in investment as disturbing and attributed it to both external and domestic factors.

The RBI governor noted that while the Wholesale Price-led Inflation (WPI) dipped below five percent, the retail or Consumer Price Index (CPI) inflation still remained high.

The WPI inflation in April slipped to 4.89 percent, the lowest in three years, but the CPI inflation stood at 9.39 percent.

He said inflation was driven by food inflation (both cyclical and structural), global commodity prices, and depreciation and demand pressures.

Dismissing the criticism of RBI's management of growth-inflation dynamics, he claimed that its monetary policy brought down inflation from double digits. He said it was inevitable to sacrifice growth to manage inflation.